China takes centre stage in gold price surge
- In Reports
- 08:07 PM, Apr 22, 2024
- Myind Staff
Gold has soared to record highs above $2,400 per ounce this year, drawing global attention. China, a major producer and consumer of gold, plays a key role in this surge. Geopolitical tensions and expectations of lower US interest rates have boosted gold's appeal as an investment. Chinese demand, from retail shoppers to the central bank, continues to drive the rally, with many seeking gold as a safe-haven asset amid uncertainty.
China surpassed India as the world's biggest gold buyer last year, with record-high consumption in jewellery, bars, and coins. Chinese demand surged across all sectors, including a 10% rise in gold jewellery demand and a 28% increase in bar and coin investments.
Philip Klapwijk of Precious Metals Insights Ltd. noted that there's still potential for demand to grow further, driven by limited investment options, the property sector crisis, volatile stock markets, and a weakening yuan in China.
Despite being the top gold producer, China's import needs are substantial and increasing. Over the last two years, it imported over 2,800 tons, exceeding the metal backing exchange-traded funds globally, equivalent to about a third of the US Federal Reserve's gold reserves.
Recent import shipments to China have picked up pace, particularly before the Lunar New Year, with a 34% increase in the first three months of 2024 compared to 2023. The People's Bank of China has been consistently buying gold for 17 months, aiming to diversify reserves away from the dollar and hedge against currency depreciation.
Central banks, including the People's Bank of China, are increasingly favouring gold, with near-record purchases in 2023 and continued high levels expected in 2024. Despite record prices and a weaker yuan, Chinese demand for gold remains strong, highlighting its enduring allure.
Gold buyers in China frequently pay a premium over international prices, which reached $89 per ounce recently, compared to an average of $35 in the past year and a historical average of $7. Despite high prices, Chinese demand remains robust, bucking the trend of buying during price dips. This sustained appetite is contributing to the market's resilience, keeping prices elevated.
Nikos Kavalis of Metals Focus Ltd. suggests that China's booming gold demand indicates a sustainable rally, offering comfort to gold buyers worldwide.
However, Chinese authorities are cautious, with state media warning against speculative investments. Both the Shanghai Gold Exchange and Shanghai Futures Exchange have increased margin requirements to curb excessive risk-taking, prompted by a surge in trading volumes to a five-year high.
Image source: Business Today
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